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Stock profit calculator with leverage5/27/2023 ![]() ![]() If the margin in the DAX CFD is 1% of the trading volume, then I have deposited a safety margin of USD 100 at 1 CFD (starting from the DAX level at 10,000 points). A lower margin is generally required for more liquid underlyings, which enables a higher product leverage. This margin is determined by the broker and may vary from asset to asset. The product leverage is calculated on the basis of the margin to be deposited. Index level x number of units / equity = leverage If my account is at 5,000 USD and I trade 1 CFD contract, then I have a leverage of 2. Now the leverage is again calculated on the basis of my equity. If we trade 1 CFD, we move 1x the DAX, currently 10,000 points. We can trade CFD contracts from 0.1 points. We want to trade the DAX and have a current price of 10,000 points. However, there are two different types of leverage in CFD trading: 1. ![]() In the CFD segment we are again approaching the calculation method from the Forex market. The leverage for CFDs is calculated as follows: Next, we have to look at other financial instruments. We will come to the correct calculation and risk-adjusted choice later in this article. Whether this makes sense is a different matter, because the medal, as always, has two sides. If I only have a 3-4 digit custody account, I can still move very large sums depending on the broker. I can simply achieve a leverage effect by raising outside capital, which in a positive case ensures a higher return on equity. Have you realized how the leverage effect (leverage) works in trading? In this case I calculate the 5,000 USD profit on the lower equity investment of 20,000 USD and come to 25% yield. What does my return on equity look like now? The result is again a positive development with settlement at 105,000 USD account balance. This results in a leverage of 1:5, since I have used 20,000 USD equity and 80,000 USD debt capital. So we borrow from the broker for this trade, 80,000 USD. We want to move USD 100,000 as in the first example, but are not willing (or able) to raise USD 100,000 equity. If the traded FX pair moves into my desired account and is settled at 105,000 USD, then I have earned 5% return on equity. That means we would have to invest USD 100,000 equity. If we don’t want to have a leverage effect, we have a leverage of 1. We now want to trade 1 LOT (which is quite a lot). The smallest possible unit is 0.01 micro-LOT (1,000 USD). 1 LOT corresponds to a trading volume of 100,000 USD or monetary units. In order to approach the topic of “trading leverage”, we start with two practical examples, especially in forextrading.įX trading is traded in LOT and settled in pips. If I trade a derivative with leverage 10, then my derivative moves 10 times in relation to the (derived) underlying. ![]() But the downturn can also be accelerated if I am wrong. In trading it means that I can achieve a high return with low equity and high debt. Overall, the leverage effect can be positive or negative. Companies can achieve a higher return on equity through the leverage effect if the interest rate on debt capital is generally not higher than the return on equity. The leverage effect describes the ratio of equity employed to debt capital in an investment through which a leverage effect can be achieved. Leverage is also explained in general literature by the leverage effect. If you know what the leverage is in trading and how to use it optimally, you will understand this statement at the end of the article. “Professional traders don’t need a bold account to trade successfully.”Īnd I think there is some truth to the statement. ![]() It also includes important tips and hints for optimal use in practice. Calculate your personal trading leverage for CFDs and forex or cryptocurrencies. ![]()
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